Oil and gas M&A activity soared by 57% in 2023, driven by mega deals and a shift in focus from shareholder returns to core operations. Top companies like Chevron and Exxon Mobil led the charge.
United States, Bollywood Fever: Dealmaking in the oil and gas industry surged by 57% in 2023 as energy companies ramped up development spending, driven by higher cash flows from previous years’ profits, according to a report released on Tuesday by Ernst & Young (EY). The report highlights a significant shift in the industry’s strategic focus, with top energy companies spending a total of $49.2 billion on mergers and acquisitions (M&A), up from $31.4 billion in 2022.
The increase in M&A activity was primarily fueled by mega deals among integrated oil and gas companies, signaling a strategic pivot toward consolidating operations and driving efficiency through scale. EY expects this trend to continue into 2024 and 2025, with more large-scale deals on the horizon.
In addition to the rise in M&A activity, exploration and development expenditures also saw a significant increase, growing by 28% to reach $93.1 billion in 2023. This marked a departure from the sector’s previous focus on maximizing shareholder returns through dividends and share buybacks, which had been a key strategy to attract investors back to the industry. Last year, companies halved their spending on dividends and share repurchases to $28.9 billion, down from a record $57.7 billion in 2022.
The overall increase in expenditures, which totaled $142.3 billion in 2023—36% higher than in 2022—was driven by both M&A activity and expanded efforts to tap into new reserves. “We started to see in 2023 a focus to consolidate the positions that operators had,” said Bruce On, a partner at EY’s strategy and energy transactions group, emphasizing the industry’s renewed emphasis on core operations.
Despite the increased spending, profits in the oil and gas sector fell by 55% to $83.9 billion in 2023, primarily due to lower West Texas Intermediate (WTI) crude oil spot prices, according to the report.
Among the top players in the industry, Chevron emerged as the leading buyer of properties in 2023, with acquisition costs totaling $10.6 billion. This included a $6.3 billion deal to acquire Denver-based oil exploration and production company PDC Energy. Meanwhile, Exxon Mobil completed a $60 billion acquisition of Pioneer Natural Resources in May 2023.
In another major move, Chevron announced a $53 billion agreement to buy oil producer Hess in October. However, this deal is currently delayed until at least mid-2025 due to a legal dispute.
As the oil and gas industry navigates these strategic shifts, the focus on consolidation and core operations is expected to shape the sector’s landscape in the coming years, with more mega deals likely to follow.
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